NEW YORK (TheStreet) -- Bebe
stores is in the midst of a turnaround plan to get itself back on track. The women's apparel retailer has a laser-like focus on who its consumer is and the kind of clothing she's looking to buy. "There have been...

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Bebe Stores, Inc. (NASDAQ: BEBE) produces and sells clothing and accessories to women between 21 and 35 years of age who follow the latest fashion trends. BEBE struggled in fiscal 2010, posting a net income loss of $5,165,000. [1]

Manufacturing costs are increasing for retail companies that produce their goods in China, which bebe is attempting to avoid by manufacturing its goods in other countries, such as Brazil and Italy. In addition, recessionary fears in the United States have led consumers to be more conservative with their spending, which the company is trying to account for by offering less trendy, more traditional items that it believes its clientèle will want to buy.

Business Overview

Bebe produces and sells its own line of contemporary women's apparel. Its target demographic is women between the ages of 21 and 35 who follow fashion trends. Bebe markets its products under a number of different brands.

Market Segmentation

The bebe store brands’ segmentation strategy is very straightforward. They strictly choose their segments in the market. In the population of the area that the group targets, they segment to females. In that segment they are promoting to 21-35 year olds specifically. Within this age group, bebe is specially targeting the very hip and trendy women with a very sophisticated mindset. For example if they were to open a store in Seoul, South Korea. The city would be their demographic area. From this population, they target all the females that are ages 21-35 years old. From these women they specifically develop campaigns that attract those that have a trendy personal style.[1]
The following is a graphical portrayal of how the bebe store brand segments its market.

Sources of Revenue

Based on the current retail environment, BEBE will continue to develop international expansion opportunities for the bebe brand and will continue to test 2b bebe stores in new and existing domestic markets. Historically when selecting a specific site, BEBE looks for high traffic locations primarily in regional shopping centers and in freestanding street locations. BEBE evaluates proposed sites based on the traffic pattern, co-tenancies, average sales per square foot achieved by neighboring stores, lease economics, demographic characteristics and other factors considered important regarding the specific location.

In fiscal 2011, BEBE plans to open 8 new stores and to relocate and expand 1 existing store. The company also plans to close up to 49 stores, primarily related to the PH8 store closures discussed previously, resulting in net square footage reduction of approximately 11%.

PH8 stores. During fiscal 2010, BEBE opened 1 new store and closed 15 stores. Their PH8 stores average approximately 2,600 square feet and are primarily located in regional shopping malls. In the fourth quarter of fiscal 2010, BEBE decided to discontinue operations of their PH8 division, allowing them to focus our efforts on improving bebe sales and profitability as well as continuing to develop our 2b bebe concept, including the possible conversion of up to 4 current PH8 stores to 2b bebe stores. BEBE has begun to close or convert the PH8 stores in the first fiscal quarter of 2011 and all 48 stores will be closed or converted during fiscal 2011.
2b bebe stores. During fiscal 2010, BEBE opened 2 new 2b bebe stores and closed one store. The 2b bebe stores average 4,540 square feet and are primarily located in outlet malls. In fiscal 2011, BEBE will continue to test 2b bebe stores in outlet centers and regional malls to access future growth opportunities.

Store Closures. BEBE monitors the financial performance of their stores and have closed and will continue to close stores that they do not consider to be viable. Many of the store leases contain early termination options that allows them to close the stores in specified years if minimum sales levels are not achieved. During fiscal 2010, they closed 19 stores. In fiscal 2011, plan to close up to 49 stores; 48 of which relate to the discontinuation of PH8 operations.

On-line store. In February 2006, BEBE migrated to a third-party platform which has provided and continues to provide improved functionality. BEBE recently implemented several enhancements that have improved the marketing to drive client acquisition and conversion. There are initiatives for fiscal 2011 and beyond to further enhance the shopping experience and integrate the webstore with retail stores and mobile applications. The bebe.com website is a source of testing new concepts, building a community with the clients as well as providing a comprehensive product offering. BEBE are currently able to ship to customers in the United States, Canada, Puerto Rico, the U.S. Protectorates and internationally via the third-party provider, International Checkout.

International. As of July 3, 2010, BEBE had 49 international stores operated by licensees in South East Asia, United Arab Emirates, Israel, Russia, Mexico and Turkey. The international licensees purchase product from BEBE to include in their licensed bebe stores; these stores are excluded from comparable store sales. As of July 3, 2010, wholesale revenue represented approximately 5% of total net sales. In fiscal 2011, BEBE plans to expand from 49 to 63 licensee operated stores, which will include expansion into Qatar. [1]

Industry Analysis

Competition

Express operates over 620 stores in the U.S. It supplies men's and women's apparel and accessories. Express has been closing and consolidating its stores for the past few years in response to decreasing sales.[3]

Guess? operates 350 standalone stores in the U.S. and Europe. It also sells its clothing through department stores such as Macy's and Bloomingdale's as well as its own website.

Wet Seal operates 490 stores under the Wet Seal and Arden B. brand names. It sells both brand name and company-produced apparel and accessories. Its clothing is geared towards young women. The company also sells clothing through two websites.

BEBE also competes against smaller, privately-held designers, such as BCBG Max Azria and Forever 21.

Porter's Five Forces

Threat of Substitute

Medium

One of the prominent reasons for such intense competition between companies is the non-existent cost of switching companies. Switching from one company to another is as simple as walking into another store. In addition, consumers do not see high-end clothing products as an essential commodity so. If BEBE or a competitor raises prices, customers will go find a more affordable option. Because customers are constantly looking for the best products at the lowest prices, BEBE and its competitors are forced to be highly innovative in obtaining and retaining customers.

Threat of Rivalry

Medium

BEBE face significant competition in the retail and apparel industry. BEBE competes with traditional department stores, specialty store retailers, lower price point retailers, business to consumer websites, off-price retailers and direct marketers for, among other things, raw materials, market share, retail space, finished goods, sourcing and personnel. There are many companies that offer similar products and cater to the same demographics as BEBE. Express has many competitors; however its main competitors are the Wet Seal, J. Crew, Cache Inc. BEBE and their competitors have all been in business for about 30 years, and each hold a significant portion of the market share. The nature of BEBE’s target market direction implies that every year there are customers outgrowing the store and leaving the market, and new customers just entering the market with no current brand allegiance. Competition between Express and its competitors for those new customers is intense. To remain competitive, Express uses consistent sales to provide its customers with the highest quality products for the very low prices. Because many of these competitors are larger and have substantially greater financial, distribution and marketing resources than BEBE does or maintain comparatively lower cost of operations, BEBE may lack the resources to adequately compete with them. If BEBE fails to remain competitive in any way, it will harm their business, financial condition and results of operations.

Threat of New Entrants

Low/Medium

The retail and apparel industries are highly competitive and are characterized by low barriers to entry. BEBE expects competition in our markets to increase. The primary competitive factors in the apparel markets are: brand name recognition, sourcing, product styling, quality, presentation and pricing, timeliness of product development and delivery, store ambiance, customer service and convenience. BEBE and its main competitors have all been in existence since the late 70’s to early 80’s. Because of this established credibility, there exists quite a bit of brand loyalty among consumers. A new company would have to work against years of advertising promoting brand recognition to be able to even consider becoming competitive.

Bargaining Power of Buyers

Medium/High

The success of our business depends in large part on our ability to identify fashion trends as well as to react to changing customer demand in a timely manner. The apparel industry is an industry that competes on the ever changing whims of the customer. Consequently, BEBE depends in part upon the customer response to the creative efforts of our merchandising, design and marketing teams and their ability to anticipate trends and fashions that will appeal to our consumer base. If BEBE miscalculates customers' product preferences or the demand for their products, they may be faced with excess inventory. Historically, this type of occurrence has resulted in excess fabric for some products and markdowns and/or write-offs, which has impaired profitability. Similarly, any failure on their part to anticipate, identify and respond effectively to changing customer demands and fashion trends will adversely affect sales.

Bargaining Power of Sellers

Low

BEBE outsources all of their suppliers to companies around the world, focusing on Asia due to the fact that labor there is so inexpensive. Outsourcing saves BEBE a lot on money on manufacturing costs. Due to the large amount of substitutes that offer low costs, the suppliers do not carry very much power.[3]
If an independent manufacturer violates labor or other laws, or is accused of violating any such laws, or if their labor practices diverge from those generally accepted as ethical, it could harm business and brand image. While BEBE maintains a policy to monitor the operations of our independent manufacturers by having an independent firm inspect these manufacturing sites, and all manufacturers are contractually required to comply with such labor practices, they cannot control the actions or the public's perceptions of such manufacturers, nor can they assure that these manufacturers will conduct their businesses using ethical or legal labor practices. Apparel companies, in certain conditions, may be held jointly liable for the wrongdoings of the manufacturers of their products. BEBE does not control their manufacturers' employment conditions or business practices, and the manufacturers act in their own interest. They may act in a manner that results in negative public perceptions of and/or employee allegations or court determinations that are jointly liable. [1]

Business Analysis

SWOT Analysis

Strengths: The bebe stores started off with a huge advantage over its competitors as a brand that targeted a very unique market with a sexy and sensual concept. This made the brand stick out and helped in expansion into international territories.

Weaknesses: The same niche market is also a weakness to the bebe company as it fails to attract anyone outside of the target market with its campaign. The campaign itself, even though it uses a lot of celebrities, goes unnoticed by anyone other than their loyal customer base. The celebrities that the company has used as their brand ambassadors are not too popular, which is ineffective in attracting newer customer or improving brand image. Some of the fashion releases are also burdensome for a lot of the already existing customers. A little extra market research and they should be able to fix the campaign and clothing line problems.

Opportunities: The brand can work on opening its doors to accommodate newer markets. For example they can explore the male market. Stores like Express have benefitted from that market while targeting customers with similar mindsets. Another opportunity for the bebe brand is to expand their internationally licensed stores into developing nations like India and South Korea. These markets are growing and are spending huge amounts of newly acquired wealth. These markets are on the verge of major evolving trends.

Threats: The bebe stores need to keeps in mind the different competitions that they have to differentiate themselves from. Stores like Express (direct competitor), and Forever 21(cheaper competitor) are taking up a lot of market share which is a huge threat to the welfare of the bebe brand. With the economic recession hurting the customer’s spending power, the bebe store brands stand at a disadvantage. [5]

Marketing Strategy

Product- BEBE stores is an American clothing retailer that was started in 1975. Founded by Manny Mashouf, the bebe stores targeted women in the “early” misses range.

BEBE

This target market, which they call the “demographic that is neither junior nor bridge,” proved very profitable to the brand. They sell inspirational fashion that portrays these women as stylish and sensual. They produce a line of “contemporary” fashion including apparel, accessories, and shoes. Its distinctive product offering includes a full range of separates, tops, sweaters, dresses, active wear and accessories in the following lifestyle categories:
[[Image:Capture3_VP.png|thumb|450px|left|BEBE[6]
career, evening, casual, and active. They have sub-brands bebeSPORT (opened in 2003), PH8 and 2b bebe. The bebeSPORT offers sportswear, tops, sweaters, outerwear, and accessories. On the other hand, the new store PH8 which opened recently in 2009, offeres casual weekend apparel, work out attire, and accessories such a bags.
Here is the size chart that the bebe stores run by:

Place- Having opened their first store in San Francisco; bebe enjoyed great success. This is shown through that fact that the company is currently operating 248 retail stores. They have an online store www.bebe.com, which was launched in 1998. They also have 21 internationally-licensed stores in operation.

BEBE

The bebe stores can be found in public malls, outlet malls and through catalogs which are available on request by the customers. The following is a table displaying the different countries that bebe stores are operating in currently:

Promotion/Advertising- The bebe brand is portrayed through an “edgy” campaign. It is a visual campign that includes many different mediums such as print, outdoor, in-store, and direct mail.

BEBE

BEBE

They descried their purpose on the website as “---- (those) intrigued by the playfully sensual and evocative imagery of the bebe lifestyle.” For the “image,” that they want for their brand, in terms of what a customer of theirs would be like wearing their brand, they gave a very specific example. They bebe woman would be defined as someone who has a unique attitude, who is very assertive, sexy and stylish. They wish for their customers to see themselves as confident women who are hip, sophisticated, and like to have a unique expression of personal style. Many celebrities like Brenda Song, Rebecca Romijin, and Eva Longoria have been brand ambassadors. The bebe brand also promotes through events. They hold semiannual collection preview event that gives clients exclusive first look at their newest lines. They also make deals with different magazine publications to host events for charity.

Price- The bebe stores price range is set at medium price level. Their merchandise ranges anywhere from $14 to $300 according to their merchandise prices on their official website. In order to keep costs low, the company designs and develops most of its merchandise in-house. The only operation that is outsourced is their manufacturing unit. [1]

Supply Chain Management

Information Services and Technology

BEBE is committed to utilizing technology to enhance their competitive position. Their information systems provide data to the entire enterprise to help improve efficiency, visibility, and actionable decision making. The core business systems, which consist of both purchased and internally developed software, are accessed over a company-wide network providing employees with access to key business applications.

BEBE’s investments in information systems for fiscal 2010 continued to focus on their stores, supply chain, central corporate systems and infrastructure. They completed the roll out of a new point of sale ("POS") system to all stores that has resulted in significant efficiency improvements for their stores and corporate offices. They also completed improvements in merchandise ordering and planning processes by fully integrating their supply chain system. In fiscal 2011, they will continue to make improvements to their POS system, improving their inventory optimization capability across channels and increasing collaboration capabilities and integration with their global vendors to deliver further efficiencies to their supply chain.

For central corporate systems, BEBE delivered a new VoIP phone system, a new helpdesk system, made progress on their paperless efforts, delivered further efficiencies to the company’s finance group and improved disaster recovery capabilities. [1]

Financial Analysis

During fiscal 2010, our marketing expenditures were $23.9 million compared to $27.5 million in fiscal 2009. In fiscal 2011, BEBE proposes to reduce their spend in marketing overall with the exception of bebe.com eAdvertising and anticipate marketing expense to be approximately $24 million.

The Price to Sales ratio is more instructive than the P/E since the company has negative earnings. This is further reinforced when looking at the EV/EBITDA ratios between COKE and its competitors. We see that COKE’s EV/EBITDA ratio is very high compared to its competitors, meaning the company is extremely overvalued.

BEBE is in the middle when compared in market capitalization to its competitors and the industry. BEBE is very similar to its competitor, Wet Seal. BEBE, however makes more revenue with less employees.

BEBE has a debt to total capital ratio of 0%, meaning no debt. This is low compared to the industry average. When compared with competitors that are similar in market capitalization (WTSLA and JCG), the company’s current ratio is high. With a current ratio of 1.13 and a total capital ratio of 0, BEBE is one step of the industry average and its competitors in those fields.

Based on its positive operating, gross, and net margins, we can see that BEBE is operating under profitable conditions. The company’s 1.84% operating margin and 1.2% net profit margin, 37.05% gross margin is far lower than the competitors listed and the overall industry average. In addition, BEBE saw its earnings drop despite of positive revenue growth during the past fiscal year. When compared to the industry average, BEBE is heavily lagging behind in all three of these metrics.

BEBE’s management effectiveness ratios are overall below the companies in the apparel industry. With an ROA, ROE, and ROI of 1.47%, 1.84%, and 1.64% respectively, the company is by all measures lower than average compared to it's industry peers. This table shows the ineffectiveness of the management.

Human Resources

Manny Mashouf founded bebe stores, inc. and has served as Chairman of the Board since our incorporation in 1976. Mr. Mashouf served as our Chief Executive Officer from 1976 to February 2004 and again from January 2009 to present. Mr. Mashouf is the uncle of Hamid Mashouf, Vice President of Information Systems and Technology.

Barbara Bass has served as a director since February 1997. Ms. Bass also currently serves on the boards of directors of Starbucks Corporation and DFS Group Limited. Since 1993, Ms. Bass has served as the President of the Gerson Bakar Foundation and is the Chief Executive Officer of the Achieve Foundation. From 1989 to 1992, Ms. Bass served as President and Chief Executive Officer of the Emporium Weinstock Division of Carter Hawley Hale Stores, Inc., a department store chain.

Cynthia R. Cohen has served as a director since December 2003 and Lead Independent Director since January 2009. She also currently serves on the boards of directors of Steiner Leisure Ltd. and Equity One, Inc., as well as several privately held companies. Ms. Cohen serves on the Executive Advisory Board for the Center for Retailing Education and Research at the University of Florida and is founder and President of Strategic Mindshare, a strategy consulting firm. Prior to founding Strategic Mindshare in 1990, she was a Partner in Management Consulting with Deloitte & Touche LLP.

Corrado Federico has served as a director since November 1996. From approximately 1997 through 2008, Mr. Federico served on the Board of Directors for Hot Topic, a publicly traded company. Mr. Federico was President of Solaris Properties until December 2008 and has served as the President of Corado, Inc., a land development firm, since 1991. From 1986 to 1991, Mr. Federico held the position of President and Chief Executive Officer of Esprit de Corp, Inc., a wholesaler and retailer of junior and children's apparel, footwear and accessories.

Caden Wang has served as a director since October 2003. Since 2005, Mr. Wang has also served on the board of directors of Leapfrog Enterprises, Inc. From 1999 to 2001, Mr. Wang served as Executive Vice President and Chief Financial Officer of LVMH Selective Retailing Group, which included international retail holdings such as DFS, Sephora and Miami Cruiseline Services. Mr. Wang previously served on the board of directors of Fossil, Inc. and as Chief Financial Officer for travel retailer DFS and retail companies Gumps and Cost Plus.

Emilia Fabricant joined bebe in August 2010 and currently serves as President, bebe stores, inc. From May to August 2010, Ms. Fabricant served as President of Destination Maternity Corporation. Ms. Fabricant served as President and Chief Merchandising Officer at Charlotte Russe from November 2008 to October 2009. From March 2007 to November 2008, Ms. Fabricant served as President of babystyle. From 2001 until 2007, Ms. Fabricant served as Founder and Chief Executive Officer of Cadeau Maternity. From 2000 to 2001, Ms. Fabricant served as President, Sales and Product Development at Katayone Adeli. From 1998 to 2000 Ms. Fabricant served as Senior Vice President, Divisional Merchandise Manager for Barneys New York, and in various other positions since joining that company in 1990.

Walter Parks has served as Chief Operating Officer since September 2006 and Chief Financial Officer since December 2003. From 2001 to 2003, Mr. Parks served as Executive Vice President and Chief Administrative Officer of Wet Seal, Inc. From 1999 to 2001, Mr. Parks served as the Executive Vice President and Chief Administrative Officer of Restoration Hardware, Inc. From 1997 to 1999, Mr. Parks served as Chief Financial Officer and Treasurer for Ann Taylor Stores Corporation, and in various other positions since joining that company in 1988.

Kathleen Fong-Lee has served as Chief Merchandising Officer since June 2009. From January 2007 to June 2009, Ms. Fong-Lee served as Senior Vice President of Merchandising at Forever 21. During 2006, Ms. Fong-Lee served as a consultant for various retailers. Ms. Fong-Lee served as Vice President of Merchandising for Gymboree Corporation from 2003 to 2005 and as General Merchandising Manager at bebe Stores, Inc. from 2000 to 2003.

Susan Powers has served as Senior Vice President of Stores since April 2007. From 2005 to 2007, Ms. Powers served as Vice President of Store Operations for Chico's FAS, Inc. From 2002 to 2005, Ms. Powers served as Vice President of Stores for The Wet Seal, Inc. From 1999 to 2002, Ms. Powers served as Vice President of Stores for BCBG Max Azria.

Lawrence Smith has served as Senior Vice President, General Counsel since August 2009 and as Vice President, General Counsel since October 2004. Prior to joining bebe stores, inc., Mr. Smith served as Vice President, General Counsel for The Wet Seal, Inc. from January 2002 to October 2004. From January 1996 to January 2002, Mr. Smith served as Vice President, General Counsel for BCBG Max Azria.

Liyuan Woo joined bebe in August 2010 and currently serves as Principal Accounting Officer and Vice President Corporate Controller. Prior to joining bebe, Ms. Woo held a Senior Manager position with the accounting firm Deloitte & Touche, LLP in its M&A Transaction Services Group from October 2004 through July 2010. Ms. Woo is a Certified Public Accountant. [1]